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HDFC Bank
Overall Momentum Strong
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„ Margins estimated to remain healthy at +4.1-4.3% band, as the bank
maintains its low funding costs (one of the lowest in the industry) due to its
high CASA which is driven by the bank’s expanding retail franchise and the
increasing focus on transactional banking opportunities that provides the
bank with significant floats.
„ HDFC Bank believes that it can sustain volume growth of +25% in FY12, if
economy grows at 7.5%-8%.
„ HDFC Bank management stressed strong risk control and focus on asset
quality has always been paramount. Asset quality has been healthy all
through the cycle - they have among the best portfolio quality (wholesale &
retail) in the industry in our view, with total provision coverage of over
+100% of NPAs.
„ HDFC Bank highlighted how the bank is effectively leveraging technology to
derive economies of scale (through centralized processing units), reduce
transaction costs, and improve sales efficiencies by higher cross sell (using
data warehousing units and CRM) and provide new and differentiated
products.
Price objective basis & risk
HDFC Bank (XHDFF / HDB)
We set our PO at Rs2700 to factor in 1) overall strong growth momentum,
especially top line, and 2) we believe HDFC BK is likely to deliver RoEs of +20%
on profit growth of +35/31% through FY12/13. We believe the stock could
continue to trade at 4.1-4.2x (currently at +4.0-4.1x FY11) FY12 book owing to
sustaining visibility of high earnings growth and comfortable asset quality.
Alternatively, stock is likely to trade in sync with earnings growth (P/E) as we
begin to move into a stronger growth phase. The bank appears yet to fully benefit
from its expanded distribution, higher capitalization, and rising loan growth. A
sharp rise in NPLs and inability to maintain growth are risks to our price objective.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC Bank
Overall Momentum Strong
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„ Margins estimated to remain healthy at +4.1-4.3% band, as the bank
maintains its low funding costs (one of the lowest in the industry) due to its
high CASA which is driven by the bank’s expanding retail franchise and the
increasing focus on transactional banking opportunities that provides the
bank with significant floats.
„ HDFC Bank believes that it can sustain volume growth of +25% in FY12, if
economy grows at 7.5%-8%.
„ HDFC Bank management stressed strong risk control and focus on asset
quality has always been paramount. Asset quality has been healthy all
through the cycle - they have among the best portfolio quality (wholesale &
retail) in the industry in our view, with total provision coverage of over
+100% of NPAs.
„ HDFC Bank highlighted how the bank is effectively leveraging technology to
derive economies of scale (through centralized processing units), reduce
transaction costs, and improve sales efficiencies by higher cross sell (using
data warehousing units and CRM) and provide new and differentiated
products.
Price objective basis & risk
HDFC Bank (XHDFF / HDB)
We set our PO at Rs2700 to factor in 1) overall strong growth momentum,
especially top line, and 2) we believe HDFC BK is likely to deliver RoEs of +20%
on profit growth of +35/31% through FY12/13. We believe the stock could
continue to trade at 4.1-4.2x (currently at +4.0-4.1x FY11) FY12 book owing to
sustaining visibility of high earnings growth and comfortable asset quality.
Alternatively, stock is likely to trade in sync with earnings growth (P/E) as we
begin to move into a stronger growth phase. The bank appears yet to fully benefit
from its expanded distribution, higher capitalization, and rising loan growth. A
sharp rise in NPLs and inability to maintain growth are risks to our price objective.
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